Evolution, Revolution, or an Impossible Job? As the financial services industry emerges from its crisis to a climate which may never be the same again, so the role of the CRO sits squarely both on the boardroom agenda and in the public spotlight.
The new risk landscape, with its plethora of different stakeholder groups and strict new national and international regulation, is incredibly complex and daunting.
There is greater personal accountability for senior management; the potential remains for new problems to emerge; institutional workforces are weary of change but still expected to be financially successful. Life is certainly not dull for the average CRO, who somehow needs to make sense of it all.
So, how do they need to adapt? What does the CRO of the future, who needs both to learn from the mistakes of the past and control a turbulent and uncertain future, look like?
Building on traditional strengths
CROs clearly need to fulfil their traditional tasks of avoiding surprises and manoeuvring organisations through challenges. Sophisticated technical skills remain vital not just to comply with new regulation, but also to raise the bar for risk identification, quantification and management. Many firms were over reliant on underperforming systems and models during the crisis with insufficient focus on comprehensive, reliable risk assessment.
With greater boardroom attention on risk, it is clear that better management information is needed to provide a holistic view of the risk landscape. Aligning finance, compliance and risk departments to help achieve this has become a priority, as has addressing data quality and consistency issues. Bridging these gaps is a key task of the 'new' CRO.
The challenges and lessons of the recent past will demand from the CRO a broader view of their firm's business risks. Instead of simply analysing 'known' risks, CROs are increasingly asking: what have we missed? What lies beneath? What are our 'unknown unknowns'?
This proactive and questioning attitude should characterise the CRO's new direction. The perception of the risk function needs to shift from disaster prevention to business strategy enablement. Identifying hidden risks; challenging strategic assumptions; embedding an awareness of the risk appetite and culture into the everyday business practices throughout the organisation; these are all ways of strengthening competitive potential. This is how CROs are increasingly demonstrating the value they add.
To manage this successfully, CROs need to bring a fresh, entrepreneurial spirit to the role. Alongside proven technical know-how is the gravitas and commerciality to maintain influence in the boardroom, not to mention influencing skills to ensure buy-in from all levels of the business. They need to be seen as people who help make things happen, not as functionaries who stifle creativity.
CROs have been given more authority and influence - accompanied by the consequent responsibility and accountability - and never before has it been so important that they act both as 'partners' to the CEO in strategy formation, and sources of independent challenge - a delicate balancing act indeed.
The CRO role is clearly not one for the faint-hearted. Financial firms' external stakeholders (governments, regulators, media, shareholders and general public) are hostile and their internal stakeholders (management and employees) remain under pressure and battle-worn. All wait hopefully for a return to 'the new normal' (whatever that looks like).
Yet, it is within this uncertainty that a great opportunity lies. CROs have the ability to shape their role, grasp their increasing centrality and prove their value to the business - not just as a key figure in a crisis, but as a major player in the transition from crisis to recovery to sustainable success.
Building on the greater general awareness of risk management and the willingness to embrace it to bring a greater confidence to business, is one of the greatest challenges - and opportunities - for a CRO.
Whether or not the sector is in a state of evolution or revolution is open to debate. What is certain is that its future shape should depend to a greater extent than ever before on the CRO community. The combination of skills the new landscape demands of them - technical, strategic, inter-personal, entrepreneurial - may seem to make it an impossible job, but it could actually position the CRO as a future CEO. This is the CRO's time, and they should grasp the opportunity.
This article represents the views of the author only, and does not necessarily represent the views or professional advice of KPMG in the UK.